Distortions and just plain falsehoods are being told about income taxes. Believing them could be costing thousands of tax dollars!
Myth #1: A Professional Tax Preparer knows all there is to know about taxes so you don't have to know anything about them.
Truth: It is impossible for anyone to know ALL the tax rules. Updates to CPA's/Accountants and Tax Preparers usually only include laws that pertain to PERSONAL income taxes.
There are thousands of excellent, hard-working accountants doing a great job. And if you use a tax professional, maybe they have done everything possible to reduce your taxes. But many professional tax preparers are just tax preparers. They may know how to prepare a tax return in their sleep. They know what numbers go on which form. But that's about all they know.
A good tax preparer is not trained in tax reduction strategies. The only way you are assured to get the tax deductions you are entitled to, as a Home-Based Business Owner, is to become informed yourself.
Myth #2: You must "itemize" in order to take Home-Based Business expenses.
Truth: Many people misunderstand the terminology here. When you "itemize" your income tax you file Form A&B and take such things as medical, home mortgage interest etc. You will only "itemize" if the total of Form A is over the standard deduction (for 2008 taxes$5,450 single, $10,900 married). Some people call this filing "long form." All taxpayers have the opportunity to itemize if it is to their advantage. Whether you "itemize" or not has NO bearing on your Business.
Untruth #3: There is no reason to file business income taxes if your business did not make a profit.
Truth: You should file a business tax especially if you are not making a profit. Home business expenses can be offset by income from your job. This reduces your taxable income which in turn reduces your tax liability.
Myth #4: Because you work a full-time job your Internet Marketing Business is just a hobby.
Truth: The rules clearly state you have a business if you meet 8 rules. Four of the most important rules to meet are:
1. The skill of the taxpayer or his/her advisers. Assuming you an Internet marketer and you are actively learning and applying what you are learning to home-based businesses and understand the principals…you qualify.
2. Time and Effort the Taxpayer puts into running the business. How much time and effort is enough? The United States Federal Tax Court has ruled that 45 minutes a day, 4 to 5 days a week qualifies.
3. The way you carry on your business activity. If you conduct your business mostly on the telephone, over the Internet and in-home presentations you'll do fine. On the other hand if you do most of your business on the golf course, during lunch or at the bar you have a hobby not a business.
4. Is the Primary Purpose of your activity to Produce a Profit, or to Produce Tax Write-offs You are not required to actually produce a profit in order to qualify for home-business tax deductions — just to show that you have the intent to produce a profit.
If you are doing this then there is no reason for your business to be considered a "hobby".
Misconception #5: In order to file home business taxes you must make a profit within 5 years.
Truth: Generally, the IRS does want you to produce a profit but the 5 year rule will not apply if you are following the 4 rules above and act like you are in business to produce a profit. Some businesses are not profitable for a number of years
Misconception #6: It's hard to learn how to reduce your taxes.
Truth: Average Small Business Owners have plenty of tax reduction strategies at their disposal. You just have to know what they are and how to use them.
Untruth #7: The home business owner should not attempt to do their own accounting and tax documentation.
Truth: All Small Business Owners can easily keep their own books using any one of a number of software programs. It is not necessary to have an accountant. You will need to be able to "categorize" and record expenses and sales.
